Wednesday, January 23, 2019

Asda shows strength in wake of discounter pressure


Supermarket Asda has increased sales by 0.5% as it built on its market share in the midst of a supermarket price war. Asda President and CEO Andy Clarke was cautious in his optimism, but felt that the supermarket would be able to cope with the “unprecedented change” within the food retail sector.

Clarke emphasised Asda‘s continued investment of £1bn in EDLPs (Everyday Low Prices), which has been at the heart of the company‘s strategy for decades but is today appealing more than ever to “savvier” customers .

Asda maintained a strong price gap to the rest of the Big 4 during the quarter and extended their ‘Price Lock‘ to 160 lines. Clive Black of Shore Capital Stockbrokers puts this down to Asda‘s ability to “smell the coffee” quicker than its competitors, who were caught “sleeping at the wheel” by putting up prices, depending on promotions and protecting gross margins, which allowed the discounters to gain a strong foothold. In contrast, Asda started to prioritise pricing and reduced the unpopular promotional activity of its rivals.

The business has also been simplified, resulting in middle management job losses. This was not an easy decision, says Clarke, but one that promoted colleague engagement and the addition of 600 roles to the new management structure.

Furthermore, Asda is making good progress on its ambition to become a leader of online sales, reporting an increase in its market presence there to 18.4%. This is a market that is becoming increasingly competitive as online retail giant Amazon rolls out its fresh food range.

Asda‘s growth in this sector continues to be driven by the expansion of ‘Click and Collect‘, which accounts for 10% of all online orders (expected to increase to 30% in the next first years) and is used by more than 20,000 Asda customers weekly. The retailer is continuing to develop this service, extending the hours customers are able to collect their shopping on a Sunday by four hours, driving a 20% increased in the day‘s orders.

Elsewhere, the George brand continues to perform well and is now the second largest clothing brand in the UK in terms of sales volume. Asda recently launched George Home range, which has delivered double digit growth in the quarter. Asda has also driven efficiency, reducing energy and waste.

Black has warned against complacency regarding Asda‘s continued success. True, Asda is leading the big boys with its focus on price, but the others are quickly coming to their senses, which create yet more challenges within the industry. From an investors‘ perspective, Black suggest that “after a few false dawns light may yet appear in the sector‘s tunnel”.